Building Rental Unit on property

7 Replies

Hey all,

Question for you. We have 5 acres in a very good location in CA. Close to colleges, hospitals, shopping, great schools, etc.

Lately, we've been throwing around the idea of creating/building an accessory unit/small cottage on our land and renting it out like a regular rental. The unit would run off its own power, we would need to install septic, etc. total cost could be around $80-100k. We would have to finance this. 

Based on local units, we could expect to charge a monthly rent of approx $1800 or so. 

Has anybody done this? I know there are codes, etc to be taken into consideration, but just curious what others have experienced in regards to this. What did you use to finance? Home Equity v regular loans?

There's a lot to consider, like type of unit, contractors, etc. 

but after we get our initial investment back, the rental profit could be quite excellent. 

Thanks for the feedback!

CW

That's just it though, anything nearby is >$100k more to purchase. What do you mean by 'too much cash for too little?'

The way I see it, for a $100k investment, I could have it payed back in <5 years, then make $21-$24k gross a year on the one unit. 

@Chris Williams , As long as Zoning allows for an A.D.U on your property, in will advice that you talk to a lender and see if you can refi and take out your money back after building and renting out the A.D.U. I recently completed the same process.

1. Take a 52K heloc on actual property.

1. Build an accessory dwelling unit on my property. $52k

2.Rented it out. $850

3.Cash out refinance the property $53K

4.Bought a condo town house cash with proceeds from refi. 72K

5. Rented out the condo town house. $750

6.In the process of cash out  refiancing the condo town house 70%=96K  to purchase a multi family dwelling. 

Started with 52k but pulling out 70% equity at 96k  through current refinancing.  So what you are conceiving is totally doable.

@Maxwell Anyimah-mensah ,

Thanks for the great response. Sounds like you've used the ADU as some good leverage. My zoning allows a 1200 sq ft dwelling. We're thinking of doing about 1,000 sq ft, and making it appeal to long term renters.

I've been contemplating Heloc v Home equity loan to get the initial funds. I like Heloc because of the flexibility. 

Did you have a contractor build your unit or use a specific company?

Thanks again! 

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